Article ID Journal Published Year Pages File Type
9548656 Economic Modelling 2005 18 Pages PDF
Abstract
This paper derives estimates for key fiscal multipliers in the major economies of Europe. Newly estimated consumption functions incorporating disaggregated wealth components facilitate a close examination of the impact of liquidity constraint effects on the transmission mechanism of fiscal policy. Analysis shows that multipliers are affected by the interest rate response to fluctuations in output and inflation and to the proportion of liquidity constrained agents in the economy. Multipliers which impact through the current value of real wealth display a positive relation with the degree of consumption smoothing, while multipliers which impact through current disposable income display a negative relation. Moreover, we gauge the impact on the multiplier response across countries when we assume that the proportion of liquidity constrained consumers is the same everywhere.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,